India's Consumption Theme Is Raring To Come Back | Open Interest

India’s consumption story has been dragging for a while now. Its been more than 18 months since the start of 2024, that a slowdown in discretionary spending has hurt the fast-moving consumer goods (FMCG) companies. However, a revival may be around the corner.

While rural consumption started turning a leaf after mid 2024, urban spending remained subdued. This imbalance led to muted volume growth for many FMCG companies and this started reflecting in their earnings since June last year.

The Nifty Consumption Index gained 3.6% in 2024, with most of the gains occurring in the last three months, courtesy rural demand as reflected in the Nifty Rural Index.

In comparison, the Nifty Rural Index has been outperforming the Nifty FMCG Index significantly. Since January 1, 2024, the FMCG Index has declined by 1.27%, whereas the Rural Index has risen by nearly 12% over the same period.

Several macroeconomic factors are contributing to this turnaround in consumption demand.

Tax cuts have added approximately Rs 1 lakh crore to household incomes, while the Reserve Bank of India’s front-loaded rate cuts have boosted disposable income and lowered EMIs. These developments are gradually lifting urban consumption.

Furthermore, an expected rationalisation of GST rates could provide an additional boost to domestic consumption at a time when global trade remains uncertain due to U.S. tariffs and ongoing geopolitical tensions.

In a recent earnings call post declaring its first-quarter performance, Rohit Jawa, the outgoing CEO and Managing Director of Hindustan Unilever, observed a sustained and gradual recovery in rural demand. He noted that while urban consumption is improving, it still lags behind rural growth—a trend seen before last year's demand compression. According to Jawa, the growth momentum is coming from smaller towns and digital platforms, particularly e-commerce and quick commerce.

The recovery across most categories is volume-driven, although the food segment continues to be price-sensitive. Jawa added that the improvements are largely reflective of better conditions in both the urban and rural informal economies. These have been supported by a stronger agricultural sector, favourable monsoons, low food inflation, and positive fiscal and monetary policy impulses.

Additional tailwinds include an above-normal monsoon this year, an early sowing season, higher-than-average water reservoir levels, and strong projected agricultural output.

These conditions have contributed to a steady consumption uptick over the last three months across general trade, modern trade, and emerging platforms like e-commerce and quick commerce.

Companies like HUL expect stronger recovery and improved performance in the April–September 2025 period compared to the festive-heavy October–March 2024–25 cycle, driven by accelerating urban demand.

Dabur also echoes this as it is quite optimistic of a sequential recovery in demand on back of softening food inflation, favorable monsoon, sustained momentum in rural, and some green shoots which are visible in the urban demand.

A key positive is the moderation in commodity inflation, which is expected to support low single-digit price growth in non-food categories, further aiding volume-led recovery.

August will be the decider for the FMCG sector as the market readies for the festival period — Raksha Bandhan, Independence Day, Onam and Ganesh Chaturthi.

By the way, some macro watchers are expecting inflation for the month of July to come in as low as 1.1%!